Economy

China May economic data complicate future policymaking

(Xinhua)
Updated: 2010-06-12 11:53
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BEIJING - Economic data for May released Friday showed that China saw rising inflation and slowing economic growth, indicative of what the "the most complicated year" meant for the country's economy.

Experts said the mixed bag of economic data would make it difficult for China's policymakers in the coming months.

China's consumer price index (CPI), a main gauge of inflation, rose in May to 3.1 percent, the highest since November 2008, according to figures released by the National Bureau of Statistics (NBS) Friday.

The NBS also reported that growth of industrial value-added output slowed to 16.5 percent in May from 17.8 percent in April.

Urban fixed assets investment for the first five months rose 25.9 percent year-on-year, 0.2 percentage points down from the first four months.

Inflation quickens

The 3.1 percent CPI growth was up 0.3 percentage points from April's rise of 2.8 percent. In the first five months, China's CPI rose 2.5 percent year-on-year.

The May figure exceeded the government's year-average target of 3 percent set in March.

The producer price index (PPI), a major measure of inflation at the wholesale level, rose 7.1 percent year on year in May, up 0.3 percentage points from April's 6.8 percent.

In May, the CPI in China's urban areas increased 2.9 percent and in rural regions by 3.3 percent. Food prices, which accounted for about a third of the weighting in calculating the CPI, rose 6.1 percent.

China's inflation has stood above 2.25 percent, the one-year deposit interest rate set by the government, for four consecutive months, which ignited growing expectations of interests rate hikes.

NBS spokesman Sheng Laiyun said the higher inflation was because of a low comparison basis from the same period last year and was pushed up by food prices hikes.

However, he said the inflationary pressure was easing and China had the basics for keeping prices under control this year.

Declining commodities prices amid the European sovereign debt crisis would reduce the inflationary pressures, he said.

Related readings:
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China May economic data complicate future policymaking CPI rises 3.1% in May

"Although China faces quite a lot of pressure, the 3-percent target is still possible," he said.

Lu Ting, China economist of the Bank of America-Merrill Lynch, said in an e-mailed note that China's rising inflation could be interpreted negatively by markets, and would be a risk for a few more months.

"We don't expect a knee-jerk reaction from policymakers: interest rates won't be hiked until the fourth quarter this year," he said.

Xiong Peng, researcher at the Shanghai-based Bank of Communications, China's fifth largest lender, said that China's CPI was expected to peak in June or July, and average at 3 to 4 percent for the whole year.

The government was likely to postpone raising interest rates to the third quarter, he added.

The People's Bank of China, or the central bank, said new yuan-dominated loans in May fell to 639.4 billion yuan ($93.6 billion) from 774 billion yuan in April.

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